Berkeley Burke Sipp Administration Ltd v Financial Ombudsman Service Limited

Factual and Procedural Background

This case concerns a challenge by the Plaintiff ("BBSAL"), a self-invested personal pension ("SIPP") provider and administrator, to the final decision of the Defendant's ombudsman ("the Ombudsman"). The Ombudsman issued a Provisional Decision on 10 November 2016 and a Final Decision on 2 February 2017, concluding that BBSAL had not acted fairly and reasonably in its dealings with the First Interested Party ("Mr. Charlton") and ordering BBSAL to pay compensation.

Mr. Charlton invested pension funds into a "green oil" scheme in Cambodia offered by Sustainable AgroEnergy plc ("SA"), introduced to him by an intermediary ("Big Pebble Ltd."). The investment was held within a SIPP administered by BBSAL. The scheme was later revealed to be fraudulent, with SA lacking title to the land and subsequently placed into receivership following a Serious Fraud Office investigation.

Mr. Charlton complained to the Defendant ("FOS") in September 2012, seeking reimbursement for losses. The Ombudsman upheld the complaint under his statutory jurisdiction to determine complaints by reference to what is fair and reasonable in all circumstances. BBSAL sought judicial review of the Ombudsman's Final Decision, with permission granted by Yip J. The Financial Conduct Authority ("FCA") was joined as an interested party. The hearing involved submissions from BBSAL, FOS, the FCA, and Mr. Charlton.

Legal Issues Presented

1. Whether a SIPP provider acting on an execution-only basis, prohibited from giving investment advice, owes a duty to undertake extensive inquiries and investigations into a proposed unregulated, high-risk investment to determine its viability and acceptability for inclusion in a SIPP, and whether it must refuse to include such investment if found unsuitable, notwithstanding client instructions.
2. To what extent the Ombudsman was bound by the principle of consistency with previous decisions of the Pensions Ombudsman Service, particularly where facts were the same or not materially dissimilar.

Arguments of the Parties

Plaintiff's Arguments

• The Ombudsman erred in law by imposing a duty on BBSAL to investigate the suitability of the investment, effectively creating a duty to advise under the guise of due diligence, which was not supported by express rules or consultation.
• The duty found by the Ombudsman was extensive, requiring foreign legal and factual investigations amounting to acting as a fraud investigator, which exceeded the administrative role of a SIPP provider.
• The creation of such a duty from general Principles undermines statutory safeguards requiring consultation before rule-making and exceeds the Ombudsman's jurisdiction.
• The Principles should only augment or clarify existing duties, not create new unexpected obligations without consultation.
• There was a conflict between the duty imposed by the Ombudsman and the specific rule (COBS 11.2.19R) requiring execution of client instructions, which does not allow discretionary refusal based on investment merit.
• The Ombudsman's decision created inconsistency with prior decisions of the Pensions Ombudsman Service without cogent reasons, undermining legal certainty and encouraging forum-shopping.

Defendant's Arguments (Financial Ombudsman Service)

• The Ombudsman's decision was lawful and within his statutory jurisdiction to decide what is fair and reasonable, applying existing Principles 2 and 6 which had been consulted upon.
• The Ombudsman did not create a new rule but applied broad, established Principles to the facts.
• The concept of due diligence necessarily involves enquiry and investigation and does not constitute rule-making.
• There was no conflict between the Principles and COBS 11.2.19R, as the latter governs the manner of executing accepted orders, not whether to accept an order.
• The principle of consistency does not bind the Ombudsman to decisions of the Pensions Ombudsman Service, which operates under a different statutory scheme.
• The Ombudsman’s decision was reasoned, fair, and consistent with his statutory framework.

Interested Party's Arguments (Financial Conduct Authority)

• COBS 11 provisions and related European Directives concern the manner of execution of client orders, not the acceptance of orders.
• The duty to execute specific client instructions does not extend to executing orders that should not be accepted in the first place.
• The Principles remain the overarching regulatory framework and apply to whether an investment should be accepted into a SIPP.

First Interested Party's Arguments (Mr. Charlton)

• Adopted the arguments of FOS and FCA.
• Accepted that different statutory schemes apply to FOS and the Pensions Ombudsman Service, and that the Ombudsman must apply his statutory framework.
• Consistency with Pensions Ombudsman decisions is not determinative and could undermine the Ombudsman's role.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by affirming the wide discretion of the Ombudsman under section 228(2) of FSMA 2000 to determine complaints by reference to what is fair and reasonable in all circumstances, noting the subjective nature of this test and the deference owed to the Ombudsman's application of rules to facts.

The court rejected the Plaintiff's argument that the Ombudsman created a new rule or duty without consultation. It found that the Ombudsman applied existing FCA Principles (2 and 6), which are broad, overarching obligations requiring firms to conduct business with due skill, care, and diligence and to treat customers fairly. This application did not amount to unlawful rule-making but was a legitimate exercise of the Ombudsman's statutory discretion.

The court emphasized the decision in the British Bankers Association case, confirming that Principles serve as an ever-present regulatory substratum that can augment specific rules without supplanting or contradicting them. The Ombudsman's conclusion that BBSAL failed to act fairly and reasonably by accepting the fraudulent investment was consistent with these Principles and good industry practice, which the Ombudsman found BBSAL had not met.

Regarding the conflict argument, the court held that COBS 11.2.19R concerns the manner of executing client orders, not whether to accept them. The duty to execute specific instructions applies only once an investment is accepted as permitted. The Principles govern whether an investment should be accepted in the first place. Thus, no conflict arose between the Principles and COBS 11.2.19R. The court agreed with the Ombudsman's interpretation and reasoning, supported by the relevant European Directives.

On the issue of consistency with prior Pensions Ombudsman decisions, the court found no error in the Ombudsman's refusal to follow them, as the Pensions Ombudsman and FOS operate under different statutory schemes with different decision-making criteria. The principle of consistency applies within the same jurisdiction but does not bind decision-makers across different statutory frameworks. The Ombudsman gave cogent reasons for his approach, and no challenge was made to the reasonableness or rationality of his decision.

Holding and Implications

The court DISMISSED the claim for judicial review.

The holding confirms that the Ombudsman lawfully exercised his discretion under section 228(2) of FSMA 2000 by applying broad FCA Principles to conclude that the Plaintiff failed to act fairly and reasonably in accepting a fraudulent investment into a SIPP. The decision clarifies that the Ombudsman may apply such Principles without it constituting unlawful rule-making requiring consultation, and that COBS rules governing execution of client instructions do not mandate acceptance of investments deemed unsuitable under those Principles.

The ruling underscores the wide latitude afforded to Ombudsmen in financial services dispute resolution and affirms that consistency principles do not require adherence to decisions made under different statutory schemes. No new precedent was established beyond applying existing principles to the facts.